A short term downwards movement was expected to end a little below 1,346.27 but not below 1,340.01.
Price broke a little below 1,340.01 to reach 1,338.06 invalidating the first hourly Elliott wave count and unfolding as expected for the second hourly Elliott wave count.
Summary: Monday should see upwards movement. The target for the main wave count remains at 1,582. Substantial confidence in the main wave count may now be had if price can move above 1,366.87. A new low below 1,310.84 would invalidate the main wave count and confirm an alternate. Prior to that, a new low below 1,334.06 would shift probability from the main to the alternate wave count. A target for downwards movement to end would be 1,279.
New updates to this analysis are in bold.
Last weekly charts, and a more bearish weekly alternate, are here.
Grand SuperCycle analysis is here.
DAILY ELLIOTT WAVE COUNT
Primary wave 2 is a complete expanded flat correction. Price from the low labelled primary wave 2 has now moved too far upwards to be reasonably considered a continuation of primary wave 2. Primary wave 3 is very likely to have begun and would reach 1.618 the length of primary wave 1 at 1,582.
Primary wave 3 may only subdivide as an impulse.
So far intermediate waves (1) and (2) may be complete within primary wave 3. The middle of primary wave 3 may have begun and may also only subdivide as an impulse.
Within intermediate wave (3), the end of minor wave 1 is moved up to the last high. This fits on the hourly chart although it looks odd here on the daily chart. There was a small fourth wave correction up at the end of minor wave 1 and it subdivides on the hourly chart as an impulse. Minor wave 2 may be a complete zigzag, also subdividing as a zigzag on the hourly chart. If minor wave 2 is over, it would be 0.50 the depth of minor wave 1.
With overall sideways movement now for the last seven days, it looks entirely possible that minute wave ii may not be over. Sideways movement may be a corrective structure for an X wave to join two zigzags in a double. Minute wave ii may yet move a little lower to complete as a double zigzag.
Minute wave ii may not move beyond the start of minute wave i below 1,310.84. This is the final risk to any long positions entered here or which members may still be holding.
At 1,437 intermediate wave (3) would reach 1.618 the length of intermediate wave (1). If price keeps going upwards through this first target, or if it gets there and the structure is incomplete, then the next target would be at 1,552 where intermediate wave (3) would reach 2.618 the length of intermediate wave (1).
There may now be six overlapping first and second waves complete: primary, intermediate, minor, minute, minuette and subminuette. This wave count expects to see an increase in upwards momentum. The increase in upwards momentum should be imminent.
A new high above 1,366.87 would invalidate the alternate wave count below and provide price confirmation of this main wave count.
Primary wave 1 lasted 14 weeks and primary wave 2 lasted 12 weeks. Primary wave 3 should be longer in both price and time as it should be extended. It may be about a Fibonacci 34 weeks. So far it has lasted eleven.
HOURLY ELLIOTT WAVE COUNT
There is only one hourly wave count today for the main wave count. Subminuette wave ii moved lower to complete as a double zigzag, ending just below the 0.786 ratio (not a Fibonacci ratio) of subminuette wave i.
At 1,403 minuette wave (iii) would reach 2.618 the length of minuette wave (i). If price keeps rising through this first target, or if when it gets there the structure is incomplete, the second target would be used. At 1,446 minuette wave (iii) would reach 4.236 the length of minuette wave (i).
The target for minor wave 3 remains the same. At 1,513 minor wave 3 would reach 1.618 the length of minor wave 1.
Overall, subminuette wave ii so far has a strong three wave look to it. The upwards wave labelled subminuette wave i (most of it now off to the left of the chart) has a good look as a five, so it looks like an impulse. Overall, the structure so far looks like fives up and threes down, which fits this main wave count. It indicates the trend should still be up.
A new high above 1,355.67 now would provide some confidence that this wave count is correct. At that stage, it would increase further in probability.
The invalidation point must remain at 1,334.06 because it is possible that subminuette wave ii may continue a little lower. Subminuette wave ii may not move beyond the start of subminuette wave i below 1,334.06. This point is still the risk today to long positions.
Volume for Friday supports upwards movement. The strongest volume was within the two upwards hours of micro wave 1. Volume overall has declined to the low as price fell to complete micro wave 2.
THIRD WAVE EXAMPLE – DAILY CHART
In discussing the curved look to Gold’s impulses, particularly for its third waves, here is an example.
Within primary wave 1, the third wave of minor wave 3 had a strong curved look to it. The impulse begins more slowly and has deep and relatively time consuming second wave corrections: Minor wave 2 was 0.68 of minor wave 1, minute wave ii was 0.76 of minute wave i, minuette wave (ii) was 0.56 of minuette wave (i), and subminuette wave ii was 0.64 of subminuette wave i.
The curved look comes from the disproportion between second and fourth wave corrections within the impulse. Here, minute wave ii lasted 4 days and shows clearly on the daily chart yet minute wave iv was over within one day and does not show up with any red candlesticks or doji on the daily chart.
Momentum builds towards the middle of the impulse, continuing to build further during the fifth wave and ending in a blowoff top. This is typical of Gold and all commodities.
This tendency to blowoff tops and curved impulses is particularly prevalent for Gold’s third waves.
Notice also how this third wave began with a series of overlapping first and second waves. When third waves extend, which is very common, this is very often how they begin. When that happens, they convince us the market will not move strongly and the wave count must be wrong, and they do that right before the trend moves clearly with increasing momentum and volume.
ALTERNATE DAILY ELLIOTT WAVE COUNT
This wave count is identical to the main wave count up to the end of primary wave 2. Thereafter, what if only intermediate wave (1) ended at the last high?
This movement will fit as a five wave impulse, although it does not have a very good look on the daily chart. This reduces the probability of this wave count.
If intermediate wave (1) was over at the last high, then it may have lasted 27 days. So far intermediate wave (2) may have taken 32 days and would still be incomplete. The proportions of this part of the wave count look slightly better than the main wave count.
There is a problem now with structure on the hourly chart within minor wave C. Minute wave i would have to be complete. It will fit on the hourly chart, but it does not have a good look as a five and looks better as a three on the hourly and daily chart levels. This slightly reduces the probability of this wave count.
Within minor wave C, minute wave ii may not move beyond the start of minute wave i above 1,366.87.
Minor wave C must be a five wave structure. So far within it minute waves i and ii would be complete. Minute wave iii downwards should be underway.
At 1,279 minor wave C would reach 1.618 the length of minor wave A. Price may end downwards movement when it finds support at the lower edge of the maroon base channel drawn about primary waves 1 and 2.
Intermediate wave (2) may not move beyond the start of intermediate wave (1) below 1,200.07.
ALTERNATE HOURLY ELLIOTT WAVE COUNT
In order to make a reasonable judgement of each Elliott wave count, it is at this stage important to see how each wave count sees recent structure at the hourly chart level.
Within minor wave C, there may now be a series of five overlapping first and second waves. Both wave counts see overlapping first and second waves, but in opposite directions. Both wave counts and classic technical analysis expect this market to begin to move strongly very soon.
At this stage, this alternate wave count has a slightly better fit (than the main wave count) with the small piece of movement labelled micro wave W on this hourly chart. This alternate wave count sees micro wave W as a three wave structure whereas the main wave count has to see this now as a five. It fits better and looks more likely as a three.
Within minuette wave (iii), no second wave correction may move beyond the start of its first wave below 1,355.67.
Minor wave C must subdivide as a five wave structure. If price makes a new low below 1,334.06, then the probability of this alternate would increase. It would be confirmed with a new low below 1,310.84.
If price moves below 1,310.84, then expect more downwards movement for a deeper pullback to end about 1,279. Look also for price to find support at the maroon channel on the daily chart. The target at 1,279 may be a little too low; the maroon trend line may stop price before it reaches the target.
Two green weekly candlesticks in a row come now with a small rise in volume. Volume for both weeks is stronger than the prior downwards week. Short term, at the weekly chart level, the volume profile looks bullish.
This week completes a weekly candlestick with a higher high and a higher low than last week. Overall, price has moved upwards this week.
It is concerning for the main wave count that both of these last two weeks have long upper wicks on the candlesticks. These wicks are bearish and indicate caution. For this reason please manage risk carefully. The alternate wave count is possible and illustrates the risk currently to long positions.
On Balance Volume this week has moved up from the lower purple trend line. This is a reasonable bullish signal this week.
RSI is still not extreme. There is room for price to rise.
Overall, price is still range bound with resistance about 1,375 and support about 1,310 – 1,305. Volume overall is declining as price moves sideways. ATR is declining and Bollinger Bands are tightly contracted. These indicators along with price point to a range bound consolidating market. Patience is required when price behaves like this.
ADX is slightly declining, indicating the market is consolidating. Importantly, ADX still indicates no trend change from up to down. If a trend returns at this time, it would be up.
The cyan trend line has been breached. Price moved up for a throwback and now has moved down and away. This may be an indicator of more downwards movement ahead. Trend lines do not always work as expected. If they did, then trading would be easy and we would all be billionaires. Nothing in technical analysis is certain; all methods are an exercise in probability. This break, retest and move away from the cyan trend line offers some support for the alternate Elliott wave count.
During this consolidation, it is still an upwards day of 8th of July that has strongest volume. The second strongest day is the downwards day of 25th of July, and the third strongest day is an upwards day of 21st of July. Overall, an upwards breakout may be more likely than downwards. This trick usually works well for Gold, but not always. Again, on balance of probability, upwards is more likely but downwards is still possible.
Friday’s downwards session comes with a slight increase in volume, which does not support the main Elliott wave count but does offer small support to the alternate. Small only because the increase is quite slight.
There is now a smaller consolidation, delineated by blue / grey lines, within the larger consolidation. Price is drifting sideways with a slight upwards bias. A break above resistance or below support would indicate the direction for the short term, until price then reaches 1,375 or 1,310 – 1,305. Friday’s session found good support at the lower edge of this small pattern.
On Balance Volume is nearing the end of its contraction between two trend lines. It must break out in the next one or two sessions, and the direction of the breakout will be a strong signal. This indicator works well with trend lines. Again, it most often works but that is not the same as always. This is an exercise in probability and not certainty.
RSI is neutral. There is plenty of room for price to rise or fall. There is small short term divergence between the lows of 17th of August and 19th of August: price has made a higher low and RSI has made a slightly lower low. This is hidden bullish divergence and indicates weakness to the downwards movement from price. This offers a small support to the main Elliott wave count.
On Balance, it is my judgement at the end of this week that overall this classic analysis is slightly more bullish than bearish. But there is enough bearishness to warrant caution. The main Elliott wave count is still more likely but the alternate is entirely possible. Manage risk carefully. Stops should be set just below 1,334.06 still.
On Balance Volume may lead the way on Monday or Tuesday next week. It should be watched very closely.
This analysis is published @ 07:07 p.m. EST on 20th August, 2016.